Expert Guide to Paying off Credit Card Debt

Credit card debt can be challenging to tackle. There’s the stress of possibly mismanaging it, accruing high-interest charges and late fees or potentially decreasing your credit score. Fortunately, learning about strategies to pay off your credit card debt, familiarizing yourself with common pitfalls in debt repayment and practicing smart spending habits can help you find credit card debt relief. MoneyGeek explores these topics and more in this comprehensive guide.

A credit card can be a good payment option—it can improve your credit and provide some theft protection. However, improper use can lead to debt and harm your finances, which goes beyond late fees and a drop in your credit score.

While working on getting out of debt can be stressful and affect your overall well-being, identifying your roadblocks can help you find a pathway forward.

Dealing with credit card debt can be challenging, including tracking due dates, determining how to pay down debt with other bills, and planning for unexpected expenses. When carrying credit card debt, it can be difficult to know where to start. However, you can get out of debt faster by starting with small, strategic steps.

The first step to financial freedom is listing your debts. If you have multiple creditors and find paying them all difficult, take care of one debt first and make minimum payments on the others. If you have extra money, use it for debt repayment. Focus on the next debt on the list as soon as you finish one, and so on.

If your income isn’t enough to meet your monthly payments, it’s time to find ways to get more money. There are two options: decrease your expenses and increase your income.

Determine aspects where you can save money, such as rarely used subscriptions. If possible, consider getting a part-time job while you’re still in debt.

Failure to make timely payments can further increase your debt. Take note of your due dates. You can set up alarms on your phone or highlight the dates on your calendar. Setting up automatic payments may also help.

Unexpected expenses can dent your finances. That’s why having an emergency fund as a safety net is essential.

If you have an emergency fund, you can use it to cover any unexpected expense while still paying off your credit card debt. If you don’t have one, consider reviewing your priorities to determine where to use your money best.

The best debt repayment method may vary per person. Consider your financial situation and needs when choosing a payoff strategy.

While paying off debt, avoid adding more debt. If possible, put as much income as possible towards your repayment.

The debt snowball method is relatively simple but counterintuitive: you pay off the smallest debt first, then the second smallest, and so on. Like rolling a snowball that gets larger as it rolls, the consumer begins by paying a small debt, gradually working up to the bigger-sized undertaking, empowered by momentum.

The debt avalanche method — sometimes called the debt ladder— focuses on interest rates. You pay off the balance of your credit card debt by tackling the debt with the highest interest rate first, then the debt with the second-highest interest rate, and so on. From a purely financial perspective, this strategy is the most efficient way to pay off your debt quickly while paying the least interest.

Start by listing your credit card debts. Rank them in order of interest rates, with the highest on top of the list. Here’s an example of how your list should look like:

Putting the credit card with 0% annual percentage rate (APR) last will allow you to focus on your other debts without worrying about high interest over time.

If you have multiple credit cards with different rates, limits and due dates, it can get overwhelming. Consolidating your credit card debts into one loan may make it easier to keep track of payments, and you may be able to lower your interest rate, but your debt principal doesn't change.

A balance transfer credit card allows you to move all your credit card balances into one card account. Aside from reducing your monthly bills into one, you can also save on interest fees. Some credit card issuers offer 0% APR for a certain period, which can be advantageous for people trying to reduce their debts.

Many people make mistakes handling their credit cards. Sometimes, the cardholder faces more debt than they’re prepared for. Knowing the typical traps you should avoid when paying down your credit card balance will help you better manage your debt.

Utilizing available resources can help you deal with a huge credit card debt. If you can’t afford to make payments, you can turn to debt relief programs or credit counseling agencies. You can find government and nonprofit organizations offering assistance. If all else fails, you may also consider filing for bankruptcy.

Not paying off your credit card debt has various consequences. The extent depends on how long you haven’t been making payments.

For instance, late payments for 30–120 days will affect your credit score. If you fail to repay your debt in six months, the bank will charge off your account and consider it a loss. This means you no longer owe them money. However, this will be recorded in your credit report for the next seven years, alerting other lenders and issuers.

Credit cards have many advantages. They’re convenient to use and help build credit. However, having too high of a balance can hurt your financial well-being. The best practice is to keep your credit utilization ratio (your revolving credit balance divided by your revolving credit limit) under 30%.

Below are some warning signs to help you identify if you have too much credit card debt.

Many resources are available to help individuals deal with credit card debt. MoneyGeek compiled a list of valuable resources you may find helpful.

• Consumer Credit Counseling Services (CCCS): Get free debt counseling or find a financial coach to help you create a debt management plan.
• Debtors Anonymous: Get inspiration from stories of people who have bounced back from debt. Find meetings you can attend as you recover from your debt.
• Federal Trade Commission: Find out the different risks of dealing with debt settlement companies. Know the red flags you should watch out for.
• Financial Counseling Association of America: Start your journey to financial freedom using the FCAA’s Debt Freedom Tool. You can also contact an FCAA member to connect with a certified credit counselor.
• Financial Therapy Association: Find a therapist who can help change how you view your finances and behave differently with money.
• Legal Services Corporation: Get legal help by searching through the LSC’s database or interactive map tool.
• National Association of Consumer Bankruptcy Attorneys: Find a bankruptcy lawyer using the NACBA’s online search tool.
• National Endowment for Financial Education: Find courses, articles and tips to help you take control of your finances and avoid excessive debt.
• National Foundation for Credit Counseling: Connect with a credit counselor, get expert advice or access financial management tools and calculators.
• Consumer.gov: Learn about getting out of debt, different credit counseling options, debt collection and debt settlement plans.
• USCourts.gov: Expand your understanding of bankruptcy — the different types and the process of filing.